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New Forms of Health Reimbursement Arrangements Coming in 2020

New Forms of Health Reimbursement Arrangements Coming in 2020

By Ken Ruotolo, Chief Operating Officer, Jul 11, 2019, 7 Minute Read

The Trump administration, in 2017, charged the Departments of Labor, Treasury and Health and Human Services with the task of making health reimbursement arrangements (HRAs) a more useful tool for employers wanting to offer broader coverage options and specifically to allow HRAs to be used for nongroup coverage. On June 13, 2019, Labor, Treasury and Health and Human Services (the Departments) released a final rule expanding the use of HRAs (the New Rule). The New Rule, which takes effect January 1, 2020, created two new forms of HRA, an individual coverage HRA (ICHRA) and an excepted benefits HRA (EBHRA) and it introduced a number of new provisions and requirements to accompany them.

But wait, you might ask: haven’t employers been forbidden, at risk of severe penalty to the employer and tax consequences to the employee, from paying premiums for any form of an employee’s individual coverage (with the exception of the little-used Qualified Small Employer HRA)? You would be correct and now in the spirit of making HRAs a vehicle for more employer/employee choice, the New Rule overrides the old rule and what was once not permitted, is now encouraged.

Below is a summary of the key provisions of the New Rule and at the end a discussion of potential implications for the group market and the brokers who serve it.

The Individual Coverage HRA

There are quite a few moving parts to the ICHRA, including requirements for employers and tax credit and enrollment implications for employees. Here are the highlights (for details see the Resources section):

Offering to Employees or Classes of Employees

There are numerous provisions regarding which employees or classes of employees can be offered what coverage and what defines a class:

ICHRA Notice Requirements

The Excepted Benefits HRA

The EBHRA permits employers to pay for a wide range of premiums and expenses, including dental, vision, life, short-term plans and COBRA. Highlights:

Implications for the Group Market

The New Rule’s most impactful changes – giving employers the ability to pay, tax-exempt, an employee’s individual-market premiums and the establishment of a wide range of employee classes could have a major impact on the group market. The New Rule seems especially tailored to appeal to the small group market.

In 2017, the last year with full data, there were about 17 million individuals covered by small group plans (Kaiser Family Foundation). The Departments estimate that by 2029, 800,000 firms will offer ICHRAs and that 11.4 million individuals will participate in ICHRAs with about 7 million of those individuals coming from traditional group health plans. Assuming most (75% or 5 million) migrate from the small group market, that will create a 30% reduction in the small group market.

There are strong inertial forces that tend to slow the adoption of new rules like the New Rule. Employers and their advisors will need to understand these changes, compare their current offering with a potential new HRA offering not only as it impacts their bottom line, but as it impacts their employee’s perception of the benefit and then decide whether to jump into unfamiliar waters. If adoption of the QSEHRA, which has been available to small employers since 2017 is any indication, New Rule HRAs may be slow to catch on (to be sure though, the New Rule provides a much wider range of options for employers than the QSEHRA).

Finally, any discussion of the impact of the New Rule must consider how the broker will counsel his or her client. If the broker, as the primary benefits advisor for the small employer, is not supportive of a transition to ICHRAs, most employers will be hesitant to implement them. Brokers who serve their clients well, minimize the friction an employer encounters from the complex group benefits market. The many provisions and requirements that accompany the New Rule will add friction. It’s not clear if brokers will embrace ICHRAs and EBHRAs and if they are favorable, how they would be compensated. Trading the more lucrative group coverage commission for the minimal individual market commission could make ICHRAs an unprofitable proposition for brokers.

Perhaps to replace the group commission that would traditionally be paid by the carrier, brokers could change their revenue model for ICHRA business by generating income from three sources:

The New Rule goes into effect quickly, in less than six months. There will be a lot of publicity around ICHRAs and EBHRAs. Brokers who educate themselves and prepare to help their clients analyze this new alternative will be a step ahead.

Resources
Health Affairs Blog: Final Rule On Health Reimbursement Arrangements Could Shake Up Markets
Individual Coverage HRA and Excepted Benefits HRA: FAQs from the IRS

Questions?
Contact the small group experts at 800.696.4543 or info@claremontcompanies.com.


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